Our research aims to identify fund managers we believe have the ability to outperform their respective market and peer group over the long term. We specifically seek managers who have demonstrated ability to add value over and above their benchmark through their stock picking, and who we believe have the potential to do so in future.
The Neptune Russia & Greater Russia Fund's official benchmark is the MSCI Russia Large Cap Index. However, in our view, the MSCI Russia 10-40 Index is a more appropriate benchmark as it reflects the investment restrictions of the fund. Although the fund has demonstrated periods of outperformance in the past it has struggled in recent years, particularly over the past 18 months. However, this should not be seen as a guide to future returns. Our analysis suggests the manager has also struggled to add value through stock selection for several years. For these reasons, our level of conviction in the fund has reduced and we no longer view it as Wealth 150 calibre.
Performance since launch of MSCI Russia 10-40 index
Source: Lipper IM to 01/09/2015
|Annual percentage growth|
| Sep 10 -
| Sep 11 -
| Sep 12 -
| Sep 13 -
| Sep 14 -
|Neptune Russia & Greater Russia Fund||9.30%||-16.80%||2.30%||-14.00%||-24.80%|
|MSCI Russia 10-40||11.80%||-13.60%||0.70%||-12.10%||-17.60%|
|MSCI Russia Large Cap||12.20%||-9.23%||0.97%||-12.58%||-21.81%|
We expect the fund's performance to deviate from the index at times as it is positioned fairly differently to the wider market. The index is largely dominated by energy and materials businesses, to which the fund has some exposure. However, the fund has greater exposure to technology, industrials and consumer businesses than the market, with the aim of offering investors broader exposure to the Russian economy. We expected the fund's differentiated positioning to offer greater potential for long-term superior results; however, we do not feel this has been achieved. The fund operates a concentrated portfolio which enables each holding to make a significant impact on returns however this is a higher risk approach.
We would stress this is not a suggestion to sell the fund providing a portfolio's objectives continue to be met. Our analysis suggests other managers investing in Russia struggle to consistently add value ahead of the wider market and the Neptune fund has performed relatively well compared with many of its peers. Although past performance should not be seen as guide to future returns.
Russia's stock market fall over the past year means it continues to be among the cheapest markets in the world. In our view, turbulent market conditions combined with extremely low valuations can present an opportunity. That said, while much of the bad news could already be factored into share prices, there are challenges ahead and markets can remain cheap and out of favour for a long time so prices could fall further. Investing in Russia has always been at the higher end of the risk spectrum.
We do not currently feature any other Russian funds on the Wealth 150. Investors seeking broad exposure to the developing world might consider an emerging markets fund (in which Russian shares may only comprise a small portion of the overall portfolio). Alternatively, investors wishing to invest in Russia might consider an ETF (Exchange Traded Fund), which aims to track a particular index of stocks. Investors seeking ETFs investing in Russia can refer to our list of Exchange Traded Products. Investors should ensure the aim of any fund or ETF they are considering meets their objectives. Investors who are unsure of the suitability of an investment for their individual circumstances should seek advice.